FICO, the company behind the nation’s most popular (no, wait: the nation’s most widely used) credit scoring system, recently commissioned a survey of of 272 risk managers at banks. It’s hard to conceive of a more tedious task than holding a conversation with any “professional risk manager,” let alone one employed in the American banking sector, but someone has to do it. Anyway, the survey’s findings did contain some interesting facts.

Business credit card use likely to rise

When asked whether they expected demand for credit from small businesses to grow in the next six months, 74 percent of respondents said yes. But only 46 percent thought that the supply of credit to those small businesses would increase. That’s quite a shortfall, and bigger than the one FICO found when it posed the same questions to bank risk managers in Europe. (Who’d have thought it? We’ve already discovered a more tedious task than talking to risk managers in American banks.)

So what can small businesses do when their bank loan applications are rejected? Make credit card applications.

Credit card use for entrepreneurs: some pros and cons

You hear plenty of stories of highly successful entrepreneurs who started out funding their businesses using credit cards. However, credit card debt is not always an ideal way to found, expand or run an enterprise. As is often the case, there’s good news and there’s bad news for those who do:

• Good news: Business credit card rates tend to be lower than consumer ones.
• Bad news: Business credit card rates are often more expensive than other forms of commercial finance.
• Good news: New credit card applications are likely to be successful when your business is going well.
• Bad news: When times are hard, you may receive an even less sympathetic hearing from your credit card companies than from your local bank manager.
• Good news: Many business credit cards provide sophisticated online tools than can reduce the administration costs of managing expenses.
• Bad news: Just like with your consumer plastic, it’s highly likely that you are going to be personally liable for your business credit card debt if things go badly wrong.

That list could continue ad nauseam. But in a sense it would be pointless to carry on. Businesspeople with better alternatives are going to continue to pay their card balances in full each month, while those with no choice are going to run up their enterprises’ credit card debt.

New business credit card services

Businesses that are looking for lines of credit increasingly have more and better options, according to the first of a new series of monthly research reports from Corporate Insight.

Here are a couple of the developments highlighted in the first report of the Small Business Card Monitor series:

1. “Jot,” a handy new mobile application from Chase for users of its range of Ink business cards, including the Ink Cash(SM) Business Card. The app allows cardholders to tag purchases as they make them, which should streamline the management of expenses.
2. New account alert services from American Express, Chase and U.S. Bank, which could help reduce unauthorized or criminal credit card use.

The next report in the series will focus on the ways credit card companies allow customers to request an employee card and the various steps in the process compared firm-to-firm.

Business credit cards can be an invaluable tool for small entrepreneurs. Just remember two things: you’re almost certain to be personally liable for any debt you accumulate on them, and they don’t provide the same consumer rights and protections that you’re used to on your personal plastic.

Published 08/22/11 (Modified 05/29/14)